Furniture Manufacturers in the US and the Great Smack DownI’ve been in the furniture industry for too many years... 4 as an analyst, 18 working for a manufacturer. As a manufacturer we’ve seen good times and more recently, bad times. It hasn't been much fun. Why? Is it just the Great Recession or is there something more going on? I believe the world is changing as we know it - and right in front of our eyes.
What follows is a snapshot of some underlying trends and observations that will produce the winners and losers of the next decade, not only in the furniture industry, but in others as well:
|Bread line in the Great Depression|
- Urban Migration – GenXY’s are flocking to cities. 50% of the population live in cities now, that number will rise to 70% by 2050.
- Job Mobility – GenXY’s generally don’t want to be tied down to a home (or children or a marriage perhaps) because they are a job hopping generation on the move. Corporations are offering fewer perks to keep people in one job for a career.
- Investment Rethinking – The R/E bubble has burst yet again and with it, a fundamental challenge to the idea, perpetuated by some, to “buy all the house you can afford”. Many walked away from their homes as their home equity vanished overnight.
- New Spending Priorities – GenXY are more interested in spending on experiences than things, and when they do spend on stuff, it’s electronics, cars, or trips, not furniture.
- New Household Formation Down - Normal 1 to 1.5 milllion new households are created a year, fueling home sales and apartment rentals that in turn fuel furniture sales (traditionally with a 6 month lag). Household formations are down by 1/3. Why? The recession can account for most of this, but there could be contributing factors that are more long lasting.
- Growing thrift, consignment store, and Craig’s List sales will put more pressure on traditional retailers, more will close their doors, making furniture more difficult to distribute by manufacturers. As Boomer’s scale back and empty out their homes, garages, and storage units, and as their children choose smaller and more urban homes, used furniture will continue to be a compelling value/style story to compete with new furniture sales. Gen XY doesn't mind giving old furniture a makeover with a bold paint job or new fabric. This is a DIY generation.
- Online Sales – preferred by GenXY, since they’ve grown up on computers. Online sales outlets like PB, Room and Board, and IKEA will continue to grow their market share. This generation generally doesn't like shopping in traditional furniture stores for many reasons. Online shopping is reducing margins for B&M retailers and comparison apps like Red Laser ar making searching for best price easier for techno savvy buyers.
- Vertical Integration - Markets favor the most efficient, lowest cost producer, which means Asian manufacturers will sell directly to consumers. Manufacturer/retailers like IKEA and Ethan Allen also have a competitive advantage.
- Specialty Niche – Consumers are increasingly looking for unique, local, autobiographical, aspirational home décor, and they will find it on sites like Etsy, where consumers are willing to pay more for unique items their neighbors don’t have. And entrepreneurial minded GenXY’s can make a living designing and making home décor and selling it online.
- Commoditization – Increasingly, furniture is commoditized. Décor has to be uniquely designed or target a niche not exploited by others.
- Social Networking - Gen XY consumers rely more on social networking to zero in on good products and services, making traditional advertising less effective. Corporations are losing control of the message. Transparency will make the good, the bad, and the ugly increasingly evident to buyers.
|This Country is going to Hell?|
|"Is this some kind of a BUST? Yes, very nice, but we don't have time for that now" : )|
10. Global Warming - Whether you believe in Global Warming or not depends largely on to whom you listen and trust for information, but if you believe in science, and most of us do, 98% of the world's climate scientists as well of most of the world's governments are taking this issue seriously. So what does this mean for the furniture industry? Increasingly, government resources will be needed to combat the effects of storm damage in the next 100 years, with a likely increase in taxes. Also, higher insurance premiums will take more disposable income out of our pockets. Finally, smaller more energy efficient homes will be preferred to reduce their carbon footprint. Population displacement, property damage,and higher priced goods and services will also have an impact.